Scintilla – a flash, a spark, an iota. Shorthand for creativity and an indicator of inventiveness under Australian law.

Monday, June 17, 2013

Is software patentable? Go ask Alice

By Senior Associate and Patent Attorney Anthony Selleck

Courts in the United States and Australia continue to wrestle with the issue of whether software and business methods constitute patentable subject matter.

The most recent development is a closely watched decision of the United States Court of Appeal for the Federal Circuit in CLS Bank v Alice Corporation Pty Ltd. The US case comes hot on the heels of the decision of the Australian Federal Court in Research Affiliates v The Commissioner of Patents, which we reported on.

Alice Corporation is an Australian company which owns a number of US patents covering computerised trading platforms. The platforms are used to conduct financial transactions in which a third party settles obligations between the two contracting parties so as to eliminate certain types of risk associated with the transaction. One example is 'settlement risk', being the risk to each party in an exchange that only one of them will actually pay its obligation, leaving the paying party without its principal or the benefit of the counterparty’s performance. The patents in suit address that risk by relying on the trusted third party to ensure the exchange of either both parties’ obligations, or neither obligation.

In accordance with good drafting practice for software and business method patents, the patents in suit included multiple categories of claims, including 'methods', 'systems' and 'computer readable storage mediums containing computer programs'. At first instance, the court found all three categories of claims invalid for not being directed to patentable subject matter under section 101 of the US Patent Code. In particular, the court concluded that the claims were directed to the 'abstract idea' of employing an intermediary to facilitate simultaneous exchange of obligations in order to minimise risk.

On appeal to the Court of Appeal for the Federal Circuit, seven of the 10 judges agreed with the trial judge that the method and computer-media claims were merely abstract ideas and thus not eligible for patent protection. However, the court was split evenly on the question of whether the system claims were patent eligible, such split resulting in the trial judge's decision being affirmed.

A number of slightly different tests for determining patent-eligibility were formulated in the various judgments, all of which appear to be aimed at preventing the grant of patents that monopolise abstract ideas or 'fundamental concepts'. For example, the test formulated by Chief Judge Rader focused on 'whether a claim includes meaningful limitations restricting it to an application, rather than merely an abstract idea'. The key to this inquiry for software and business method inventions is 'whether the claims tie the otherwise abstract idea to a specific way of doing something with a computer, or a specific computer for doing something'. Under this test, the system claims were patent eligible, but the method and media claims were not.

The patent-eligibility tests expressed in CLS Bank v Alice Corporation, have echoes in the Australian Research Affiliates decision. In particular, both courts recognise that purely 'abstract ideas' are not eligible for patent protection, whereas applications of such ideas may very well constitute patentable inventions. However, the split among the court in CLS Bank v Alice Corporation is a stark illustration of the uncertainties that arise when this seemingly simple test is applied to inventions that involve computer software and financial innovation.

The next statement from the Australian courts on the issue is likely to come from the Full Federal Court, in the event that leave to appeal in the Research Affiliates decision is granted. It will be very interesting to see if the Australian court can, in considering patent-eligibility in the context of the securities index construction methodology in issue in Research Affiliates, arrive at a more unanimous view than the US court did in CLS Bank v Alice Corporation.

In the meantime, we refer you to the view expressed in our earlier post, that applications of novel algorithms in many fields of computer science will fall comfortably on the right side of the line of patentability. We expect this will continue to be so, irrespective of the outcome of the Full Court's decision about the particular invention in issue in Research Affiliates.

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